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Encyclopedia entry
Capital Structure in New Ventures
Published 2023
The Palgrave Encyclopedia of Private Equity
How new ventures are financed is a key issue for scholars and policymakers alike, as entrepreneurs’ preferences for and access to various types of funding have substantial implications for their survival, growth, and performance (Berger and Udell 1998; Cassar 2004; Manigart and Khosravi 2023). Capital structure concerns the combination of funding sources that a company uses to finance its operations, assets, and future growth. The capital structure of new firms is fundamentally different from those of established companies. Young, particularly innovative, firms have limited cash flow capacity and, therefore, must rely heavily on external sources to finance their ventures (Block et al. 2018).